Franklin hospital company completes $7.6B buyout

Jan. 28, 2014

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Next steps?

Now that the merger is complete, CHS will have to work on integrating two big companies. Here are some top priorities for CHS’ management team, courtesy of Frank Morgan, the managing director of Healthcare Services Equity Research for RBC Capital Markets.

1. Reassure HMA employees. With the purchase of HMA, CHS now has 70 new hospitals — full of administrators, doctors, nurses and other staff who have been through a tumultuous period. Acquisitions can be traumatic for any company, and one this size can rattle employees. CHS’ first step, Morgan says, should be to assure HMA employees that there is a management team in place that will improve the company’s operations.

2. Make good on promises to Wall Street. CHS’ second priority, Morgan said, should be executing the basics. “They have spent all this money to make this acquisition — they've financed it, it's closed,” said Morgan. “Now it's just a function of delivering on the promises you've made to Wall Street and your shareholder base, which is that you can run those assets much better than they've been previously run.”

3. Advocate for Medicaid expansion. HMA is a Florida-based chain. Like Tennessee, Florida is a state that has not expanded Medicaid thus far, which means that CHS now has more exposure in the Florida market, according to Morgan. CHS would see better profit margins if more patients had health insurance when they came in for treatment. Therefore, Morgan says, the third step post-merger should be to advocate for more states, such as Florida, to expand Medicaid.

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Franklin-based Community Health Systems has completed its $7.6 billion purchase of Florida-based Health Management Associates Inc., creating, by one measure, the largest for-profit hospital company in the country.

Through its affiliates, Community Health Systems now owns, leases or operates 206 hospitals in 29 states. The company’s affiliates employ more than 135,000 people, while about 27,000 physicians serve on the medical staffs of CHS-affiliated hospitals.

“The acquisition of HMA adds about 70 more hospitals to our portfolio. Our corporate resources are very mature and will be able to support these hospitals effectively,” said Tomi Galin, a spokeswoman for CHS. “We’ve added a new operating division and also anticipate that our overall centralized support services and corporate office expansion could create close to 100 jobs in Middle Tennessee.”

CHS is now the largest U.S. hospital operator in terms of the number of facilities; Nashville-based HCA remains the largest in terms of annual revenue.

“We are very pleased to complete this important strategic acquisition and welcome our newly affiliated hospitals and their physicians and employees to our organization,” said Wayne Smith, chairman and CEO of CHS. “This transaction provides us with increased scale and broader geographic reach as we work to create strong health care networks across the nation.”

This merger, which has been in the works since July, has overcome several hurdles. First of all, this past summer, HMA’s activist investor, a New York-based investment firm called Glenview Capital Management LLC that owned 14.5 percent of HMA’s common shares, overhauled HMA’s entire board.

Second, in December, Randi Weingarten, president of the American Federation of Teachers — a 1.5 million-member labor union with investments in both CHS and HMA — wrote a letter to CHS officials disapproving of the HMA merger. The AFT was concerned, Weingarten said, that Glenview had too much control over the merger.

The next month, CHS acknowledged ongoing federal investigations at both CHS and HMA for billing practices.

However, none of those actions blocked the merger. In fact, the two hospital companies received approval for the takeover from HMA’s revamped board earlier this month, when 98.7 percent of the votes cast were in favor of the deal.

Finally, last week, the Federal Trade Commission green-lighted the merger, though it requested that CHS divest two outpatient hospitals facilities, which are currently subsidiaries of HMA, within six months after the FTC approved the deal.

CHS’ last major merger happened in July 2007 when the company purchased Triad, a Texas-based hospital chain that had spun off from Nashville-based hospital chain HCA in 1999. The Triad purchase added 50 hospitals to CHS’ network and moved the company beyond its original business model of only owning rural hospitals.

Community Health attempted a buyout of the Texas-based Tenet Community Health more than three years ago, but the company’s attempts were rebuffed by Tenet’s management. CHS ultimately dropped its pursuit of Tenet in 2011.